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Dubai: Gulf banks are fundamentally strong despite an unprecedented increase in non-performing loans and high provisions witnessed last year, according to a senior Standard Chartered official.

"Governments and central banks in the region have been wise to add money into the banking system in the early days of the financial crisis. With the strong government support the banks have weathered the storm," Lenny Feder, Group Head of Financial Markets at Standard Chartered Bank, told Gulf News in a recent interview at the Standard Chartered Financial Markets forum in Dubai.

Although the financial crisis limited the access of regional institutions to international capital last year, Feder said: "As a region, there is still a huge liquidity pool available that serves as a strong deposit base for the banks operating here. The system-wide technicals of regional banks are far better compared to their counterparts in other parts of the world," he said.

Feder said there has been a slowdown in credit demand from businesses due to the overall slowdown in economic activity.

But as demand for credit picks up, regional banks are expected to resume fundraising from international capital markets. "We expect fundraising activity by Gulf based companies and banks to pick up from the second quarter," he said.

With higher provisions already in place most banks have fortified their balance sheets against any short- to medium-term surprises from potential corporate defaults. The UAE Central Bank said on Tuesday that the non-performing loans in the country will probably increase to about 6.4 per cent of all credit, from 4.4 per cent in 2009.

According to a recent study by Kuwait-based Global Investment House (GIH) the Gulf banks are expected to perform better this year as regional economies and oil prices recover, although the average provisions are expected remain above three per cent of total assets.

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